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Tuesday, April 19, 2016

1MDB Defaults On $1b Loan, IPIC Says

An Abu Dhabi sovereign-wealth entity said Monday that the Malaysian state fund 1MDB had defaulted on $1.1 billion it owed in a new blow to the scandal-tainted company.

The announcement, made in a filing to the London Stock Exchange by Abu Dhabi-based International Petroleum Investment Co (IPIC), raised the spectre of Malaysian market turmoil if 1MDB is unable to dig out from under its huge debts.
1MDB, or 1Malaysia Development Berhad, was founded by Malaysian Prime Minister Najib Razak in 2009 but is now teetering on the verge of default amid multiple investigations around the world into allegations that billions were looted from it.

IPIC had agreed in 2012 to guarantee $3.5 billion in 1MDB bonds, lend it more than a billion dollars, and make interest payments on the bonds.

In its statement, IPIC said 1MDB and its owner, Malaysia’s Finance Ministry, had failed to pay back more than $1.1 billion they owed.

“As a result, 1MDB and MOF are in default,” IPIC said.

Najib has been under fierce pressure over 1MDB’s accumulation of more than $11 billion in questionable debt, and his own acceptance of nearly $700 million into his personal bank accounts in 2013.

Najib has denied that the money he received, first revealed last year, was siphoned from 1MDB, saying it was a gift from the Saudi royal family.

Saudi Arabia’s foreign minister confirmed last week the money came from his country, but only after weeks of silence as doubts over Najib’s claim grew.

Following IPIC’s announcement, Malaysia’s Finance Ministry issued a statement curtly noting the “dispute” over the loan but sought to reassure markets.

“The MOF wishes to make clear that it will continue to honour all of its outstanding commitments in the financial markets,” it said.

1MDB’s problems have riveted Malaysia for more than a year, ratcheting up pressure on Najib to resign and raising concerns that Malaysia financial markets could be hammered if the company were to default on its massive debts.

The scandal had already contributed to a plunge in the value of Malaysia’s ringgit currency last year.

1MDB was supposed to pay IPIC back via payments to a subsidiary of the Abu Dhabi fund called Aabar Investments PJS.

Contrary to 1MDB’s claims, IPIC said last week that Aabar never received the money.

A recent investigative report by the Wall Street Journal said 1MDB instead paid more than $2 billion to a British Virgin Islands entity, an apparent shell company with a nearly identical name to Aabar’s.

The British Virgin Islands entity has since been shut down, the Journal said.

“IPIC and Aabar …. are considering their options in relation to this dispute, including referring the matter to the appropriate dispute resolution forum,” the statement said.